A snapshot of the economy

Wal-Mart profits climb, but outlook is wary

Associated Press

Associated Press

Published 9:10 pm, Thursday, February 21, 2013

In this Wednesday, Nov. 22, 2012, photo, Eva Cevallos with her eleven-month daughter, Quinn, shop during the Thanksgiving Pre-Black Friday event at the Walmart Supercenter store in Rosemead, Calif. Wal-Mart Stores Inc. offered a weak business outlook Thursday, Feb. 21, 2013, as new economic challenges for its low-income U.S. shoppers start to take a toll. (AP Photo/Damian Dovarganes)

NEW YORK — As the fortunes of many Americans go, so goes Wal-Mart, so goes the economy.

Even as the world's largest retailer on Thursday reported an 8.6 percent rise in fourth quarter profit during the busy holiday shopping season, it offered a weaker forecast for the coming months.

The problem? The poor and middle-class Americans Wal-Mart caters to — and who are big drivers of spending in the U.S. — are struggling with rising gas prices, delayed income tax refunds and higher payroll taxes.

Melanie M. Burkhardt, a mother of two teenagers who shops at Wal-Mart, is one of those people. Burkhardt, a Waycross, Ga., resident, said she's been hit with a double whammy: the payroll tax hike, which has cut her household monthly income by $260, and higher gas prices.

"We had to do a flip on our budget," said Burkhardt, a legal assistant who plans to cut back on her trips to Wal-Mart. "This is money we used for things like going to a movie or splurging at Olive Garden. Not anymore."

It's widely known that Americans in the lower income brackets continue to struggle even as higher earners benefit from improved housing and stock markets, but Wal-Mart's results signal that matters may be getting worse for the nation's poor and middle-class.

Wal-Mart is the latest in a string of big-name companies from Burger King to Zale to say those Americans are being squeezed by new challenges. But since Wal-Mart accounts for nearly 10 percent of nonautomotive retail spending in the U.S., it is a bellwether for the economy.

"Wal-Mart moms are the barometer of the U.S. household," said Brian Sozzi, chief equities analyst at NBG Productions who follows Wal-Mart. "Right now, they're afraid of higher taxes and inflation."

Indeed, while wealthier households have seen their stock portfolios grow, poor and middle-class Americans have struggled to regain their financial footing since the recession ended more than 3 ½ years ago.

While incomes for most Americans have failed to keep pace with inflation since the recession, that's been particularly true for middle and lower-income earners.